How Ford's Attracting a Disappearing Consumer
Born during an explosion in digital technology, the Millennial generation (of which I'm a member) has become tech-savvy, multitasking phenomenons, at one with smartphones and the Internet. Ford , General Motors , and the rest of the auto industry face a difficult challenge to attract my generation amid adverse market changes and ever-increasing advertising noise. But Ford seems to have accomplished this better than its peers.
What's the big problem?
Millennials continue to drive less due to the recent urbanization trend where over 80% of our population lives in urban cities -- a percentage that continues to climb. This trend makes my generation more reluctant to purchase a vehicle, with public transit so readily available in the big city.
This is even more true when you consider young adults' student loans have recently hit record highs. Payment delinquency on those loans has increased rapidly as some graduates struggle to find good jobs. These trends could diminish vehicle demand and crimp automakers' future revenue pipeline. Currently, my generation is estimated to be 80 million consumers strong, with an estimated purchasing power of $200 billion annually. That's lot of profits to miss out on.
Over the last six decades, one trend has been consistent: Americans drive more and more every year. But in 2004, that trend reversed, and miles driven per person continue to decline to this day. Automakers are wondering whether this is only a historical hiccup, or if the Millennial generation is about to change how Americans live and work as dramatically as the baby boomers did.
U.S. Department of Transportation's (U.S. DOT) Traffic Volume Trends series of reports; data from previous years from U.S. DOT's Highway Statistics series of reports. Source: USPIRG.org
Boom and bust?
The baby boomers ushered in a driving boom fueled by low gas prices that made driving cheap enough for nearly the entire population. But those gas prices have risen dramatically, and younger consumers now are often saddled with more student loan debt than in the past making it more difficult to take on another large monthly payment.
We also have to consider that decades ago, women were newly entered into the labor force and became incremental full-time commuters adding to the boom in miles driven -- a type of surge we won't have again. The baby boom also led to a surge of people at peak driving age through the mid 2000s. That surge, combined with a suburban population explosion, drastically increased miles driven and the need for more vehicles.
Those trends aren't helping increase miles driven today; thus, the demand for vehicles may stay flat or even decline. Today the Millennials are the largest generation in the U.S., and these trends have some automotive investors worried.
But don't panic just yet.
There's good news, too
Ford and GM will still have plenty of growth in emerging markets to offset a potential decline in Millennial vehicle purchases.
Right now, Ford gets almost two-thirds of its revenues from North America and its Asia-Pacific-Africa division brings in just over 8%. The latter region is expected to bring in 40% of Ford's revenues by the end of the decade; an enormous jump.
In addition to that, both companies get a large portion of their profits from full-size pickup trucks, a segment liklely to be less affected as Millennials' switch from suburban to urban living.
Isabelle Helms, senior director of research and marketing analytics for AutoTrader.com, is also more optimistic about this being a small hiccup in history. "Millennials do care about cars, and they do intend to drive," said Helms, according to the Detroit News. "They're just delaying their purchase, and cars are very much a very important part of their lives."
When the Millennials do get ready to make a purchase, it takes a unique advertising style to cut through all the digital noise and bring them into the showroom. With a social media strategy to do just that, Ford is now a step ahead of its competitors.
Ford's first Fiesta campaign in 2009 was both groundbreaking and critically acclaimed. The campaign provided Fiesta vehicles to selected consumers, and paid for gas, insurance and other necessities for 100 agents in social-media blogs and other mediums to create original first-person content that Ford used in advertising. The videos, articles and other content were used during sporting events, on TV, at music festivals, as well as on media sites themselves.
Ford went back to that strategy for the 2014 Fiesta, producing the first ever completely user-created advertising campaign - a night-and-day difference from standard automotive advertising strategies.
"Consumers -- Millennials in particular -- like being a part of the brands they feel represent them," said Keith Koeppen, Ford advertising and media manager. "... This demographic is accustomed to creating content about their lives, so it just makes sense to give their creativity a bigger platform with greater scale."
According to Polk retail data, Ford has grown its retail share of the millennial market faster than any other automotive brand since 2009. Ford's 80% growth from the first half of 2009 to the first half of this year blows away the 35% industry average. That pace would soon make Ford the No. 1 choice for younger buyers.
What makes this even more powerful for Ford is that it currently ranks No. 1 in auto brand loyalty, meaning these new and younger customers could be lifelong buyers for the Dearborn automaker.
Graph by author. Information credit: R.L. Polk & Co.
Much like the difference between generations, the world is changing at an increasingly rapid pace. Companies like Ford that can adapt to trends their competitors overlook will continue to thrive. Ford's management is proving very capable at attracting a generation that's driving less often, while still focusing on growth in emerging markets. Both efforts should keep Ford a valuable investment for the long-term investor.
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Fool contributor Daniel Miller owns shares of Ford and General Motors. The Motley Fool recommends Ford and General Motors. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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